BLOG:  Digital Financial Reporting

This is a blog for information relating to digital financial reporting.  This blog is basically my "lab notebook" for experimenting and learning about XBRL-based digital financial reporting.  This is my brain storming platform.  This is where I think out loud (i.e. publicly) about digital financial reporting. This information is for innovators and early adopters who are ushering in a new era of accounting, reporting, auditing, and analysis in a digital environment.

Much of the information contained in this blog is synthasized, summarized, condensed, better organized and articulated in my book XBRL for Dummies and in the chapters of Intelligent XBRL-based Digital Financial Reporting. If you have any questions, feel free to contact me.

Imagining the Future of Accounting Workflow

Imagine something.  What if the accounting standards as written by standards setters (such as the ASC), books for working with the accounting standards (such as this book published by CCH), other interpretations of the accounting standards (such as this Wiley US GAAP Guide), chart of accounts (such as this chart of accounts in CCH Audit Accelerator), the chart of accounts used by AI assisted audit software (such as this MindBridge software), XBRL-based taxonomies published by standards setters (such as the US GAAP XBRL Taxonomy), Intermediate Accounting Textbooks (such as this textbook), other resources created by Big 4 CPA firms and others (such as USGAAP Plus created by Deloitte), dynamic audit solution metadata (see here), reporting checklists (such as this), the reports themselves (such as this), and other such things (here is a cross reference I created) were all CONNECTED via machine-readable metadata.

What if all these things that are connected were not created in individual silos, but where interconnected using machine-readable metadata.

What if things that were published using books were published using a media that was human-readable and machine-readable.

What new sorts of products could be created?  How might functionality provided by existing products be enhanced?

How would all this impact accounting, reporting, auditing, and analysis workflow?

Here is some brainstorming and testing I am doing in this regard.

These are some of the sorts of changes that the fourth industrial revolution will bring.

Posted on Monday, August 5, 2019 at 07:30AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Adapting to Changes Caused by the Fourth Industrial Revolution

We are in the midst of the fourth industrial revolution.  Here is a list of the all four industrial revolutions:

  1. Mechanization, water power, steam power.
  2. Mass production, assembly line, electricity.
  3. Computer and automation.
  4. Cyber physical systems.

There is plenty of information in mainstream media that explains what the fourth industrial revolution is (Wall Street Journal; Forbes; NPR podcast; McKinsey). What the fourth industrial revolution means from a macro perspective is that transformative technologies will change industries.  Accounting, reporting, auditing, and analysis will not receive any sort of exemption from these transformative changes.

Each of the Big 4 CPA firms is providing information about the fourth industrial revolution and general information about risks and benefits and what you might want to do to adapt:

In their book The Technology Fallacy, authors Gerald C. Kane, Anh Nguyen Phillips, Jonathan R. Copulsky, and Garth R. Andrus dispel the myth that technology is behind digital transformation and shows how people are the real key.  The authors define digital maturity:

Digital maturity is primarily about people and the realization that effective digital transformation involves changes to organizational dynamics and how work gets done.

Society shapes technology's trajectoryHumans employ technology.  Understanding only technology will get you no where really.  People try and project what all these changes mean.  For example, Deloitte articulates their vision of this transformation related to accounting in The Finance Factory.

But know one really knows exactly what will change, how the changes will unfold, or exactly what the end result will look like.  Everyone will tell you that they have a unique understanding in order to get you to purchase their products.  How do you avoid these snake oil salesmen?

The best way to understand what the fourth industrial revolution will bring is to replace ignorance with knowledge.  I have summarized what I have learned about all this in two documents.  The best and most current is Artificial Intelligence and Knowledge Engineering Basics in a Nutshell.  The second, and very similar to the first, is Computer Empathy.  I am not pushing any specific product, I am not even pushing any specific technology.  I am simply laying out the moving parts of the puzzle as I have come to understand that puzzle and providing information you can use to reduce ignorance and increase knowledge.

My personal focus is in the area of accounting, reporting, auditing, and analysis.

Make no mistake, change is not only inevitable it is imminent.  Human-machine colaboration is how work will be done in the future.  Machine-readable general purpose financial reports are a reality today. Accounting bots already perform useful work. AI assisted audits are real now and will improve even more over time. Accounting workflow is being reshaped. How to audit an organization is being rethoughtAutomation of analysis is being explored. Pretty much everyone needs to improve their digital maturity.

What are you doing to avoid becoming road kill?

Accounting Today: Accounting in the fourth industrial revolution

World Economic Forum: The Fourth Industrial Revolution: what it means, how to respond

World Economic Forum: The Fourth Industrial Revolution (Video)

Posted on Sunday, August 4, 2019 at 07:26AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Understanding Logic Basics

Different domains such as philosophy, computer science, and knowledge engineering use different terminology to describe and discuss logic which can be quite confusing and make these things harder to understand.  Below are the common fundamental terms that I came up with based on what others are using in an attempt to come up with a best practices summary of this terminology.

Logic is a set of principles that forms a framework for correct reasoning. Logic is a process of deducing information correctly.  Logic is about the correct methods that can be used to prove a statement is true or false.  Logic tells us exactly what is meant.  Logic allows systems to be proven.  Using logic information can be created that is understandable both to humans and to machines.

  • A logical system or formal system is a set of terms, relations, assertions, and a world view that is proven to be consistent, valid, complete, sound, and fully expressed. An ontology-like thing can define a logical system.  A financial report is a type of logical system.
  • A model, or conceptual model or conceptualization, describes a possible world.  There exists some set of all possible models that can be used to describe real worlds that could exist.
  • A logical statement is a sentence that carries information that is either true or false.  Terms, relations and assertions are all forms of statements which provide information about a logical system.  A statement, a statement of fact, and a fact mean the same thing. Questions, commands, and opinions are not logical statements. All statements have a truth value with respect to some model.
  • Axioms, theorems, and restrictions are all types of assertions.
  • An axiom is a type of statement that describes self-evident logical statements related to a logical system that no one would argue with.
  • A theorem is a type of statement that is a logical deduction which can be proven by constructing a chain of reasoning by applying axioms or other theorems in the form of IF…THEN statements.
  • A restriction is a constraint or limit usually mandated by some sort of authority.
  • A rule is a synonym for assertion with respect to some model of the real world that could possibly exist (i.e. you cannot create rules that are true in worlds that can never exist).
  • A conditional statement is a type of statement that has an IF…THEN type format. Look at a statement as being a piece of information that is either correct or incorrect.
  • Logical entailment, or logical consequent, is when a logical statement follows from another statement or set of statements. Synonyms for logical entailment include logical inference or logical deduction.  Accountants sometimes use the term impute. The rules of inference provide a system in which we can produce new information (statements) from known information (statements).
  • The connectors AND, OR, and NOT are used to combined statements to create compound statements.

Logic gates are building blocks of a digital system.  Terms, relations, and assertions of some logical system can be determined to be logically consistent or inconsistent with some logical system.

Professional accountants have an innate understanding of logic.  Having a bit more formal understanding will help professional accountants thrive in the digital age and what is being called the fourth industrial revolution.

Posted on Saturday, August 3, 2019 at 08:06AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Barriers to Financial Reporting Automation are Really all in the Mind

This article by Michael Berrington, Director at IFRS SYSTEM and Financial Reporting Specialists, Barriers to automating financial reporting, hits the nail squarely on the head:

“In most cases the barriers to financial reporting automation are really all in the mind.”

You can read the article yourself to get the details.

Here is everything you need to know to have an intelligent conversation about digital financial reporting.  Recognize that expert systems for creating financial reports will be created.  Artificial intelligence will be assisting auditors (AI assisted audits). Accounting bots will be a reality. The Finance Factory will be created.  The Fourth Industrial Revolution is a real thing.

And so HOW will all this come to be? Brick-by-brick, that is how it will be created. Lots of tasks could be candidates for automation:

(Click image for larger view)

Brick-by-brick, much like building a house, business domain experts and software engineers can create tools that automate certain types of tasks in some process. Humans encode information, represent knowledge, and share meaning using machine-readable terms, relations, assertions, patterns, languages, and logic (i.e. ontology-like things). That will be the way an increasing number of work tasks will be performed to complete accounting, reporting, auditing, and analysis tasks in a digital environment.  Lean six sigma techniques and philosophies will help keep process quality high.  The result will be more efficient and more effective processes.

If you want to make sure you get your foundation right and want to understand the moving pieces of the puzzle, I would suggest that you have a look at Artificial Intelligence and Knowledge Engineering Basics in a Nutshell.

This is another good article.

Posted on Wednesday, July 31, 2019 at 09:06AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Central Role Played by Ontology-like Things and Other Metadata

If you understand how computers work; then you will recognize that ontology-like things and other such metadata will play a central role in accounting, reporting, auditing, and analysis in a digital environment.  Properly created ontology-like things and other metadata will supercharge accounting, reporting, auditing, and analysis.  Consider this diagram:

(Click image for larger view)

If there is any question in your mind about this, I would encourage you to read the following documents:

Once you see the "magic" working, it will be easy to understand all of this.  For now, you can fiddle around with my prototype ontology-like thing and other metadata. Also, here is some additional brainstorming related to these ideas.

Posted on Tuesday, July 30, 2019 at 07:18AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint